Projections for General Fund (GF) revenue were revised down by $178.8 million for the 2017 Fiscal Year.  On a positive note, the revenue earmarked for the School Aid Fund (SAF) has increased from earlier estimates by $152.9 million for the 2017 Fiscal Year, resulting in an overall increase of $25.9 million from the January estimates. 

The GF revenue estimates for the 2018 Fiscal Year were revised down by $114.1 million from the January estimates, while the SAF were revised up by $187.4 million.  Continuing the trend, January estimates for the 2019 Fiscal Year were revised down by $99.8 million for the GF and were increased by $199 million for the SAF. 

The changes from the January estimates were driven by revisions to sales tax, individual income tax, and business taxes.  Sales tax collections, which mostly go in the SAF, are estimated to be higher than previously projected, while the individual income tax and business tax are now lower than estimated in January, thus resulting in a lower GF forecast.

Today’s biannual Consensus Revenue Estimating Conference saw State Treasurer Nick Khouri, State Budget Director Al Pscholka, Senate Fiscal Agency Director Ellen Jeffries, and House Fiscal Agency Director Mary Ann Cleary join the House and Senate Appropriation Committee members and heard to hear testimony from several economists.  The purpose of the hearing was to reach a consensus on the numbers that will be used to complete the state budget for the 2016-2017 Fiscal Year. 

Today’s conference was a follow-up to the one held in January, revising the estimates they made at that time.  Testimony was provided from the Research Seminar in Quantitative Economics at the University of Michigan, the W.E. Upjohn Institute for Employment Research, and economists from the House and Senate Fiscal Agencies and the State Budget Office.

The revised numbers are based on the newest economic data and forecasting models.  Highlights of the information presented today includes:

Michigan:

• The economic recovery period is extended to ten years
• The next three years are expected to be positive, but slower growth is anticipated
• Job growth is projected to continue to grow, but at a slower pace
• Wage and salary employment is projected to continue to grow through 2019, replenishing 4 in 5 of the jobs lost during the recession
• The Medicaid expansion, allowed under the Affordable Care Act, boosted job growth
• Personal Income is expected to grow through 2019
• The baseline income tax is growing, but is weaker than recent years
• While the Net Income Tax revenue will continue to grow, adjusted for inflation, it is 20% below the inflation adjusted peak in the 1999 Fiscal Year
• Retail sales are trending up, after a slight din in the first quarter of 2017
• The GDP forecast isn’t great, but it will be better than what we’ve been seeing
• There is recovery in vehicle production, but not the employment gains economists hoped to see
• Inflation is expected to increase in 2017, have a slight dip in 2018, and increase in 2019

National:

• 2017 first quarter GDP growth was weak, but this is viewed as a temporary hiccup
• The April unemployment rate of 4.4% is the lowest rate since May 2007
• The labor force participation rate is flat; this is a sign of strength because more people are entering the labor market
• Hourly compensation is growing slower and has stalled over the past several months
• Light vehicle sales are lagging behind the prior year
• Onshore oil production is growing fast again
• Domestic oil production should continue to grow in the near future
• Core inflation fell in March, which is a cause for some concern
• Single family housing is projected to grow

As always, the presenters outlined several risks to the economic forecasts.  On the federal level, there remains an uncertain fiscal path in terms of tax reform, infrastructure funding, and the Affordable Care Act.  There is also uncertainty on trade policy and if some treaties may be renegotiated.  Additionally, the federal deficit is expected to continue growing through FY19.  In the state, there remains volatility in the business taxes.  As is always the case, there are risks from any abnormal weather, which can have vast impacts on the projections and forecasts.

The House, Senate, and administration will use these numbers to complete the state budget for the upcoming 2017-2018 Fiscal Year.  The legislature is continuing to work toward their goal of completing the budget by mid-June.

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